What is a Taxable Event? Asset Strategy

Put plainly: a taxable event is a transaction that causes someone to owe money to the government in the form of taxes.[1] Seems simple enough, right? When it comes to retirement and savings, there are a few important taxable events that you might want to keep an eye on.

Earned Income

Receiving earned income from an employer is a taxable event.[2] When you receive earned income from an employer, you have to pay a percentage of that money to the federal government.[3] You also will probably have to pay some amount to the state you live in, and you may have to pay some amount to the local government as well.[4]

Dividends

When you receive dividends for stock ownership, that is usually a taxable event (although there are some exceptions to this rule).[5] This is especially important to keep an eye on if you are planning to use dividends as part of your retirement plan. Also, be sure to understand the difference between ordinary dividend income, which is taxed at your income level, and qualified dividend income, which may be eligible for a lower tax rate.[6] The rate at which these dividends are taxed also varies on the shareholder’s income.[7]

For people aiming to use dividends as income, if your earned income is lower than $42,625, you will not owe federal taxes on dividends.[8]

Selling an asset

Selling any kind of capital asset for a profit is a taxable event.[9] Capital assets are things like cars, property, stocks, bonds, collectibles, and antiques.[10] The sale of these kinds of assets is taxed differently, as any gain from the sale is categorized as a capital gains tax. The amount of the capital gains tax depends on how much you gained from the sale, how long you have owned the asset, and what your income level is.[11] The sale of assets that you have owned for less than a year is charged at a higher rate, which is called the short-term capital gains tax.[12] Assets that you have owned for more than a year are charged less and are considered long-term capital gains.[13]

The Takeaway

Taxes and tax management can be an important part of wealth management. Most folks are aiming to keep as much of their own money in their hands as possible. Tax optimization strategies are also very important for retirees and people who are about to retire.

If you’re looking for someone to take a look at your finances and give you suggestions, you might want to reach out to our advisors today for a complimentary review.

 

[1-5, 9-13] https://www.investopedia.com/terms/t/taxableevent.asp
[6-8] https://www.fool.com/investing/stock-market/types-of-stocks/dividend-stocks/how-dividends-taxed/


Because investor situations and objectives vary this information is not intended to indicate that an investment is appropriate for or is being recommended to any individual investor.

This is for informational purposes only, does not constitute individual investment advice, and should not be relied upon as tax or legal advice. Please consult the appropriate professional regarding your individual circumstance.

Advisory Services offered through Asset Strategy Advisors, LLC (ASA), a SEC Registered Investment Advisor.  Securities offered through Concorde Investment Services, LLC. (CIS), member FINRA/SIPC. Insurance Services offered through Asset Strategy Financial Group, Inc. (ASFG)”. ASA, CIS and ASFG are separate companies.

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